Postal Service Seeks 2-Cent Rise in First-Class Mail

July 6 (Bloomberg) -- The U.S. Postal Service proposed raising the price of first-class stamps by 2 cents, to 46 cents, while rates for periodicals increase 8 percent and parcels 23 percent to narrow a deficit projected at $7 billion this year.

The increases would generate $2.3 billion in the first nine months of 2011, the service said today in a statement. Increases, which must be reviewed by Postal Regulatory Commission, would take effect Jan. 2.

“We’re doing this because the Postal Service really faces a serious risk of financial insolvency,” said Stephen Kearney, a senior vice president with the Postal Service.

The commission has 90 days to rule on the proposal, one of several steps the Postal Service is considering to cope with a decline in mail volume as Internet use increases. The service also is seeking approval from Congress to end Saturday delivery, provided since the Post Office was founded in 1863.

“The Postal Service is wrong on the law, wrong on the economics, and wrong as a matter of public policy,” James Cregan, executive vice president of government affairs for the Magazine Publishers of America, said in an interview before the announcement. The increase will drive away profitable mail, heading the service toward a “death spiral,” he said.

Mailers of catalogs, magazines and newspapers are prepared to fight the rate increase, Cregan said. The group’s members include Time Warner Inc. and Meredith Corp.

‘Exceptional, Extraordinary’

The Postal Service is using a legal provision that lets it propose increases greater than the rate of inflation under “exceptional or extraordinary” circumstances, Kearney said. The average increase would be 5.6 percent, compared with inflation of 0.6 percent, he said.

Express mail and priority mail, such as the flat-rate boxes advertised by the Postal Service, are excluded from the current proposal, and higher prices for those offerings will be announced in October, the agency said.

A 23 percent increase would apply to parcels under one pound, said Maura Robinson, a spokeswoman. Heavier packages typically used to ship books, videos and merchandise face an average increase of about 7 percent, she said.

The Postal Service’s parcel charges “will remain competitive, which shows how underpriced they are now,” Kearney said.

The Postal Service lost $1.6 billion in its recent quarter as customers continued to use the Internet to pay monthly bills and read publications that previously were delivered by mail. The service projects a deficit of $238 billion through 2020.

Mail volume dropped 6.3 percent from Oct. 1 through March 31, the service said May 6. Profitable types of mail are falling faster than less-profitable categories, which include bulk advertising mail, Chief Financial Officer Joseph Corbett said.

The agency also has asked Congress for permission to delay a required retiree health benefits payment and for more flexibility to close facilities.

--With assistance from Angela Greiling Keane in Washington. Editors: Steve Geimann, Larry Liebert

To contact the reporter on this story: Todd Shields in Washington at Tshields3@bloomberg.net.

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.

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